BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 556


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          Date of Hearing:  April 21, 2015


                ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION


                                  Mike Gatto, Chair


          AB 556  
          (Irwin) - As Amended April 7, 2015


          SUBJECT:  Trusts:  regulation and enforcement


          SUMMARY:  Expands the definition of a "commercial fundraiser for  
          charitable purposes" in order to strengthen the Attorney  
          General's (AG) ability to enforce disclosure requirements for  
          charity fundraisers, and establishes a ten-year statute of  
          limitations for enforcement actions against charity fundraisers,  
          consultants and other third parties who engage in fraud or  
          prohibited conduct.  Specifically, this bill:  


          1)Expands the definition of "commercial fundraiser for  
            charitable purposes" to include any person or entity that  
            plans, manages, advises, counsels, consults, or prepares  
            material for, or with respect to, the solicitation of funds,  
            assets, or property for charitable purposes and is compensated  
            by a percentage interest in the funds, assets, or property  
            received through a solicitation campaign, rather than by a  
            flat fee.


          2)Expands the definition of "commercial fundraiser for  
            charitable purposes" to include any person or entity that  
            plans, manages, advises, counsels, consults, or prepares  
            material for, or with respect to, the solicitation in this  








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            state of funds, assets, or property for charitable purposes  
            and: 


             a)   Has any ownership or management interest in any other  
               entity that receives or controls the funds, assets, or  
               property solicited for charitable purposes; or

             b)   Receives any material financial benefit, directly or  
               indirectly, from any other individual or entity that  
               receives or controls the funds, assets, or property  
               solicited for charitable purposes, other than the nonprofit  
               soliciting the funds, assets, or property for charitable  
               purposes.


          3)Exempts from the definition of "commercial fundraiser for  
            charitable purposes" certain specified individuals, including,  
            among others,  trustees; charitable corporations; employees or  
            agents of commercial fundraisers, and any attorney, investment  
            counselor, or banker who in the conduct of that person's  
            profession advises a client when actually engaged in the  
            giving of legal, investment, or financial advice.


          4)Clarifies that any person or entity who indirectly maintains  
            an interest in an escrow account into which solicited funds  
            are deposited, or who indirectly maintains access of the right  
            to access funds, assets, or property received by a caging  
            (i.e., direct mail fundraising) company as a result of a  
            solicitation, falls under the definition of "commercial  
            fundraiser for charitable purposes."


          5)Establishes a 10-year statute of limitations for the AG to  
            bring a civil action to enforce this Act, as well as to  
            enforce existing anti-fraud statutes under Civil Code Sections  
            2223 and 2224.









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          6)Provides that specified disclosures about fundraising counsel  
            that entities that solicit funds for charitable purposes with  
            the participation of fundraising counsel must make at the time  
            of solicitation shall be clear and conspicuous and appear in  
            at least 12-point type, if printed or presented  
            electronically.


          EXISTING LAW:  


          1)Governs charitable corporations, trustees, commercial  
            fundraisers, fundraising counsel and commercial co-venturers  
            who solicit or hold property for charitable purposes through  
            the Supervision of Trustees and Fundraisers for Charitable  
            Purposes Act (Act), and generally provides the AG with  
            supervisory and enforcement powers over these entities.   
            (Government Code Section (GC) 12580 et seq.)  
          2)Requires commercial fundraisers and fundraising counsel, both  
            as defined, to register with the AG's Registry of Charitable  
            Trusts and to file an annual financial report of funds  
            solicited on behalf of each charitable purpose or  
            organization.  (GC 12599, 12599.1)


          3)Defines "commercial fundraiser for charitable purposes" to  
            mean any individual, corporation, unincorporated association,  
            or other legal entity, except as specified, who for  
            compensation does any of the following:


             a)   Solicits funds, assets, or property in this state for  
               charitable purposes;

             b)   As a result of a solicitation of funds, assets, or  
               property in this state for charitable purposes, receives or  
               controls the funds, assets, or property solicited for  
               charitable purposes; or








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             c)   Employs, procures, or engages any compensated person to  
               solicit, receive, or control funds, assets, or property for  
               charitable purposes.  (GC 12599(a))


          4)Requires, not less than 10 working days prior to commencement  
            of each solicitation campaign, the filing with the AG's  
            Registry of Charitable Trusts of a notice setting forth, among  
            other things, the person responsible for directing and  
            supervising the work of the commercial fundraiser under the  
            contract and the fundraising methods to be used.  (GC  
            12599(h))


          5)Requires a written contract between commercial fundraisers and  
            charities for each solicitation campaign or event containing,  
            among other things, a statement of charitable purposes of the  
            campaign or event; if the commercial fundraiser is to be paid  
            a fixed fee, a statement of the fee and a good faith estimate  
            of what percentage the fee will constitute of the total  
            collections; if the commercial fundraiser is to be paid a  
            percentage fee, a statement of the percentage of contributions  
            that the charity will receive; a requirement that all funds in  
            the control or custody of the commercial fundraiser be  
            deposited into the charity's bank or delivered to the charity  
            within five working days of receipt; and specified contract  
            termination provisions.  (GC 12599(i))


          6)Defines "fundraising counsel for charitable purposes" to mean  
            any individual, corporation, unincorporated association, or  
            other legal entity, except as provided, who is described by  
            all of the following:


             a)   For compensation plans, manages, advises, counsels,  








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               consults, or prepares material for, or with respect to, the  
               solicitation in this state of funds, assets, or property  
               for charitable purposes;

             b)   Does not solicit funds, assets, or property for  
               charitable purposes;



             c)   Does not receive or control funds, assets, or property  
               solicited for charitable purposes in this state; and



             d)   Does not employ, procure, or engage any compensated  
               person to solicit, receive, or control funds, assets, or  
               property for charitable purposes.  (GC 12599.1(a).)


          7)Requires fundraising counsel for charitable purposes to file  
            annually with the AG, a report listing each person,  
            corporation, unincorporated association, or other legal entity  
            for whom the fundraising counsel has performed any specified  
            services, and a statement certifying that the fundraising  
            counsel had a written contract with each listed person,  
            corporation, or other legal entity that complied with  
            specified requirements.  (GC 12599.1(d))


          8)Requires a written contract between a fundraising counsel for  
            charitable purposes and a charitable organization for each  
            service to be performed by the fundraising counsel for the  
            charitable organization that shall be available for inspection  
            by the AG. (GC 12599.1(f))


          9)Requires any individual, corporation, or other legal entity  
            who for compensation solicits funds or other property in this  
            state for charitable purposes to disclose prior to an oral  








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            solicitation or sales solicitation made by direct personal  
            contact, radio, television, telephone, or over the Internet,  
            or at the same time as a written solicitation or sales  
            solicitation that a) the solicitation or sales solicitation is  
            being conducted by a commercial fundraiser for charitable  
            purposes, and b) the name of the commercial fundraiser for  
            charitable purposes as registered with the AG.  (Business and  
            Professions Code Section 17510.85)


          10)Provides for a 10-year statute of limitations for any action  
            brought by the AG against trustees or other persons holding  
            property in trust for charitable purposes or against any  
            charitable corporation or any director or officer thereof to  
            enforce a charitable trust or to impress property with a trust  
            for charitable purposes or to recover property or the proceeds  
            thereof for and on behalf of any charitable trust or  
            corporation.  (GC 12596)


          FISCAL EFFECT:  Unknown


          COMMENTS:  


           1)Purpose of this bill  .  This bill is intended to strengthen the  
            AG's ability to regulate charity fundraising campaigns by  
            closing a loophole in current law that allows third party  
            fundraisers hired as so-called "fundraising counsel" to avoid  
            disclosures about their fees that are currently required of  
            commercial fundraisers.  The bill also strengthens the AG's  
            enforcement powers by extending the statute of limitations for  
            enforcement actions against charity fundraising firms and  
            other third parties who engage in fraud or prohibited conduct.  
            This measure sponsored by Attorney General Kamala Harris. 

           2)Author's statement  .  According to the author, "Existing law  
            regulates for-profit companies that raise money on behalf of a  








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            charity but keep a portion of the money raised as profit.  
            Companies that raise money on behalf of charitable  
            organizations, known as commercial fundraisers, are required  
            to disclose to donors that a paid professional fundraiser was  
            involved in the solicitation campaign.  'Fundraising counsel,'  
            persons or entities that plan, manage, or advise charities on  
            their charitable solicitations activities and receive a  
            portion of the funds raised, are not subject to the same  
            transparency requirements.  In the recent charity enforcement  
            case brought by the AG's Charitable Trusts Section, People v.  
            Help Hospitalized Veterans, the cost of charitable fundraising  
            was 65 to 72 percent of the gross annual revenue received from  
            donors.  Because the professional fundraisers were classified  
            as 'fundraising counsel,'  Help Hospitalized Veterans was not  
            required to disclose to donors that paid professional  
            fundraisers were involved in the solicitation campaigns."



           3)Charitable fundraising and AG oversight  .  According to the  
            2014 Causes Count report by CalNonprofits, there are more than  
            70,000 active 501(c)(3) public charities in California.  
            California's charitable organizations contribute 15 percent of  
            California's Gross State Product and employ nearly 1 million  
            people.  Nonprofits are also generally highly trusted  
            institutions, with over 80 percent of Californians surveyed by  
            the Causes Count report stating that they are confident that  
            nonprofits act on the public's behalf and deliver quality  
            services.  



          The AG is responsible for regulating charities and the  
            professional fundraisers who solicit on their behalf.  All  
            charitable trustees and fundraising professionals are required  
            to register and file annual financial disclosure reports with  
            the Registry of Charitable Trusts in the AG's office before  
            soliciting in California.  The attorneys and auditors of the  
            AG's Charitable Trusts Section investigate and bring legal  








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            actions against charities, their officers and directors, and  
            fundraising professionals that misuse charitable assets or  
            engage in fraudulent fundraising practices.  
           4)Expanded definition of "commercial fundraiser for charitable  
            purposes  ."  This bill revises the definition of "commercial  
            fundraiser for charitable purposes" to ensure that companies  
            soliciting charitable donations as "fundraising counsel" must  
            register as commercial fundraisers.  For-profit companies that  
            solicit money on behalf of charitable organizations but keep a  
            portion of the money raised as profit are currently regulated  
            as "commercial fundraisers."  Commercial fundraisers have to  
            register with the AG, must identify themselves to donors by  
            their registered name, and must explain to donors that the  
            charitable solicitation is being conducted by a commercial  
            fundraiser.  By contrast, "fundraising counsel" which help  
            plan, manage, or advise charities on their charitable  
            solicitations but do not directly engage in solicitations are  
            currently not subject to the same disclosure requirements.  


            According to the author, recent AG enforcement cases revealed  
            instances in which professional fundraisers who registered as  
            fundraising counsel rather than as commercial fundraisers in  
            order to avoid disclosing their identity to donors.  This bill  
            revises the definition of "commercial fundraiser for  
            charitable purposes" to include an individual or business that  
            plans, manages, counsels, advises, or prepares material for  
            the solicitation of funds for charitable purposes if the fee  
            arrangement with the charity gives the person or business a  
            percentage of the funds raised - even if the fundraiser  
            neither directly solicits donors nor holds any funds raised  
            through the fundraising activities conducted.  According to  
            the author's office, this will close the loophole in current  
            law and give the AG the ability to better protect the public  
            from charitable fundraising fraud. 


           5)Extension of statute of limitations  .  This bill extends the  
            statute of limitations for enforcement actions against charity  








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            fundraising firms and other third parties who engage in fraud  
            or prohibited conduct.  While the AG has 10 years to bring  
            enforcement actions against trustees, officers, or directors  
            of a charitable organizations for fraud or other violations,  
            that 10-year statute of limitations does not extend to third  
            party fundraisers, consultants, or accountants.  Instead they  
            are subject to either a three or four year statute of  
            limitations, depending on the cause of action.  According to  
            the author's office, in a recent case, the AG was unable to  
            bring an action for fraud against the persons registered as  
            "fundraising counsel" because the three-year statute of  
            limitations had passed.  This bill establishes a 10-year  
            statute of limitations for all persons or entities involved in  
            the fraud in order to be consistent with the 10-year statute  
            of limitations that applies to fraud cases involving directors  
            and officers of a charity.


           6)Recent Amendments  .  Recent amendments to the bill removed  
            opposition by charities and nonprofit organizations.  The  
            Direct Marketing Association (DMA) states it has proposed some  
            "non-substantive, clarifying amendments" to address its minor  
            remaining concerns.  


           7)Double-referral  .  This bill was double-referred to the  
            Assembly Judiciary Committee, where it was heard on April 14,  
            2015, and passed on a 10-0 vote.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Department of Justice








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          Wounded Warrior Project, Inc.




          Opposition


          None received.




          Analysis Prepared by:Jennie Bretschneider / P. & C.P. / (916)  
          319-2200